Onward and Upward: Exports are thriving, but Türkiye can do even better

Türkiye has promising economic prospects. However, it needs exports and new external markets, to grow sustainably. This matters particularly in an era where cross-border deficits, financing of these external deficits, and dependence on commodity imports are gaining an ever-increasing prominence.

Likewise, current account (CA) deficits have also long been deemed the ultimate source of almost all evil hovering over modern economies. The concept itself is a measure of external deficit and demonstrates the saving-investment imbalances of a nation. A measure of how productive and prudent an economy is.

From the external finance needs to the exchange rate dynamics, and strong domestic demand to the inflationary trends, it affects all economic factors. External deficits or extreme foreign-source dependence might also make the economy vulnerable to external shocks. The trade deficit, and hence exports, is an essential factor in this dynamic.

Türkiye, on the other hand, is a dynamic and competitive economy with rising self-reliance in energy, defense, manufacturing, and even agriculture. At some point, through the end of the 2010s, Türkiye has even set a short CA surplus course between 2019 and 2021. However, CA balance has since turned negative again. Yet, the new economy team is determined to fight against this disease.

Accordingly, Türkiye has a new focus to bring down the trade deficit (currently close to $100 billion) and the CA deficit close to $50 billion now (the 2022 figure was also around $49 billion).

As per the official long-term plans, the country is aiming to decrease its CA deficit to 4 percent of GDP in 2023. The end of the medium-term-plan (MTP) target for 2026, on the other hand, is 2 percent.

Financing these deficits is another issue. Huge energy and gold imports are raising financing needs. Domestic nuclear and other renewable energy investments are surely crucial at this point. However, part of decreasing these external finance needs is also increasing trade in national currency, which has reached almost 822 billion liras (around $28 billion) in 2023.

Hope in times of despair

Despite the unfavorable external dynamics, Turkish export figures are strong. After all, debt accumulation, monetary tightening, and rising rates in the West (since at least the beginning of 2022) as well as the stagnant outlook in Europe and the US have already brought foreign demand down.

Weak global growth and trade, due to high rates and geopolitical risks, have negatively impacted all the world economies. The twin earthquakes, which caused widespread destruction in Southeast Türkiye last year, posed another major downside risk.

Regardless, Turkish exports have recently been revitalised thanks to rising tech investments and a dynamic entrepreneurial culture. Annual exports are already at $255.8 billion in 2023 (even over the 255 billion target in the MTP). This is, meanwhile, the highest export figure in the history of the modern Turkish Republic.

Nowadays, particularly defense, aviation, auto, electronics, IT, jewelry, software, and even agricultural sectors play a significant role in strong Turkish export figures. Defense exports alone, for instance, have reached a historic $5.5 billion in 2023.

Meanwhile, the global monetary tightening cycle is also over, as of the end of 2023. Even a further potential new expansionary cycle is expected in 2024 (mainly due to fears of new recessions, as is clear from the latest data from the UK). Furthermore, recovering Europe and the other current leading export markets could together lead to a rise in exports.

Concurrently, Türkiye has surely been consistently growing (starting with 1.9 percent GDP growth in 2020, a strong 11.4 percent in 2021, 5.6 percent in 2022, and another expected 4.4 percent year-on-year in 2023). The primary driver of this trend, Turkish exports, have also hit record highs post the COVID-19 pandemic, raising its share in total global exports to over 1 percent.

Finding new markets

Türkiye is gradually transforming into a leading global production and export hub. The country aims to boost its exports, leveraging sound infrastructure and a high technology foundation built in particular during the past 20 years.

For instance, the Turkish export figures were at $36 billion in 2002. In 2023, it is expected to be almost 8 times this measure 21 years ago. Notably, since the beginning of the second half of 2023, Turkish exports have been posting record monthly figures. And this fact certainly has something to do with the country's post-election new economic policies, formed after the May 2023 elections.

Furthermore, Türkiye is also focusing on exports in higher unit value. Investments in new technologies, and high-tech industries should keep up productivity and propagate efficiency.

Comparing the Turkish foreign trade data by manufacturing industries (based on their technology intensity), on the other hand, demonstrates that high-tech industries’ share in exports is particularly on the rise. Aviation, auto and electronics sectors are just a few such sectors.

More specifically, new subsidies, finances and incentives, and recently raised discount window limits (that are directed at strategic sectors) by the Central Bank of the Republic of Türkiye (CBRT) are helping post these record export figures.

Export support incentives in the budget were around $400 million in 2023, and are expected to double in 2024.

Türkiye is also planning to establish a new digital bank, the Turkish Trade Bank, specialising in financing exports and other export-related new projects.

Besides, part of these huge trade statistics could also be related to Türkiye’s geo-strategic and geo-economic position. After all, Türkiye is at the crossroads of numerous new era major trade routes. The country is also the safest trade route from East to West, and from North to South.

Türkiye has recently been focusing on ways to effectively utilise this strategic advantage and diversify its export markets.

The Turkish government seems determined to reach all markets around the globe. New trade and customs deals with countries in the Middle East and Central-Asia and focus on the global South are worth underlining here.

Despite the recent focus on the global south and expansion to new markets, Europe and leading European economies are still among the main destinations for Turkish exports.

The 5 primary Turkish export markets (according to the November 2023 official TÜIK data), on the other hand, include Germany, the USA, the UK, Italy, and Iraq.

These economies are buying more of Turkish goods as Türkiye remained relatively stable amid the supply-chain disruption caused by the Covid-19 pandemic and the US-China trade war. Türkiye is (accordingly) gradually transforming into a new production and logistics hub of the world.

Public incentives, higher human capital and high-quality production, and being a reliable production partner, make Türkiye a better trade partner for all these countries. No doubt, particularly in the trade with Europe case, customs union agreement is another major factor.

Expanding beyond the borders

Türkiye’s 2028 exports target is over $500 billion, with $375 billion in goods exports and another $200 billion in service exports. And Türkiye does indeed have the means to meet this upcoming rising demand. With the addition of TOGG electric car exports, new defense, or other leading Turkish brands’ exports, the current $255 billion figure should soon rise.

But Türkiye needs to focus on some important areas to keep up the momentum. For example, the primary driving force behind exports is foreign demand. Türkiye should hence focus more on raising demand for its exports. It needs to keep working on diversifying the export markets.

A repositioning is also in order, to place the country as a trusted supplier in the same line with South Korea, China, India, and others. High-value-added, and high-tech exports (in defense, auto, aviation, electronics, IT, software/game) must be increased as well.

To achieve this, subsidies could step in to provide new financing options and incentives as well as a new course of financial deepening for the export sectors. And it’s important to decrease dependence on energy imports.

There’s yet another thing that needs to be done and that’s focusing more on the Turkish diaspora in Europe, Central Asia, Middle-East, and even the US.

Compared to its population, Türkiye has probably one of the biggest diasporas abroad as 5 to 10 million Turks live and work in other countries. Meanwhile, almost 60 percent of the Turkish exports are already targeting seven countries with the largest concentration of Turkish diaspora.

For all these reasons, Türkiye had better focus on finding new export markets, as well as raising its firms’ productivity, introducing new international brands, and focusing on more innovation and value-added creation, if it is to increase its share in global exports.

Türkiye has a promising real economic outlook. However, it needs more exports and new international markets to grow sustainably. Turkish exports are already expanding fast, without any limitations. And Türkiye looks set to grow beyond the borders.